Reimagining comparative advantage, supply chains, & PPPs, are key to developing African industry

Most African MICs that I have worked in, or studied in depth, want to be like China, or maybe India, without its troubling Gini coefficient. However, the majority of Africa’s MICs have been down the road of government led growth before. Most African MICs adopted economic models, post independence, that were socialist in nature, where the public sector was the primary catalyst for growth. This didn’t work out well. 

A summit of Nigerian and Ghanian young startup executives foretokens a private sector spurt that may help African MICs tread a path into the future. (Creative Commons)

Most African MICs, that adopted models of state led growth, now have their landscapes littered with failed public sector firms. The industrialization strategies, for most of Africa’s MICs in the 1960s and 1970s, was simple. If you have comparative advantage in something, don’t sell it unprocessed, manufacture it into something, and export it. 

But, to date the success of African MICs in industrialization has been modest. The difference between Africa’s attempts to industrialize, and China’s is considerable. Africa’s MICs tried to develop their areas of comparative advantage, and China created their own. 

China taught the world that modern economies don’t just have comparative advantage in particular products, where a nation is resource rich. China developed industries with a vision of having complete supply chains, whose profitability is based on the premise of economies of scale. 

China imports raw materials, uses its comparative advantage in cheap labor, and mass produces a variety of goods. China’s industrialization strategy is to produce in such large quantities, that its comparative advantage becomes price. China doesn’t attempt to produce the highest quality goods, but to produce the cheapest. 

China now has suit, shirt, tie, and toy cities, and much more. They created comparative advantage based on not just cheap labor, but low unit costs that come with economies of scale. Africa’s MICs never managed to get their state enterprises to a level of scale of production to make their potential exports competitive. 

Africa’s MICs lack the government expenditure to be able to replicate China’s model. African MICs, also can’t continue to provide unprocessed raw materials for factories overseas, and not reap its value addition. 

For Africa’s MICs to successfully industrialize, they will need to promote public private partnerships (PPPs), and to specialize to compete with nations like China who produce at much higher volumes. Fortunately, for Africa’s MICs, they have many successful large private enterprises, and large numbers of billionaires, that know how to industrialize and export. They just need more capital to be further impactful. 

Africa’s MICs need to reimagine comparative advantage, and use PPPs to successfully industrialize. But, in promoting PPPs, Africa’s MICs will be paving the way to development with income inequity. Industrial development with an externality, is better than no development at all.